Marriage is a blessing, or is it? Conflict over money and finances is one of the primary reasons marriages fail. Untangling the finances of a married couple can be an extremely complicated and plush process. With the successful passage of marriage equality, the narrative of my LGBTQ clients has shifted. What was once, “How do we plan since we can’t get married?” has become, “Just considering we can, does that midpoint we should?”
The financial ramifications of marriage impact scrutinizingly every speciality of your financial plan, including taxes, retirement, budgeting, insurance, and more.
So let’s explore the financial pros and cons of marriage – gay or straight.
Five Financial Benefits of Marriage
1. Tax Savings
Married couples who file their tax returns jointly may qualify for higher tax deductions and credits than single filers. For example, single filers have a standard deduction of $13,850 but couples enjoy a standard deduction twice that at $27,700. If you find yourself itemizing your taxes, the visualization virtually this may not be as straightforward, so consult your purser or financial counselor for a closer review.
Deductions aside, married couples may save on taxes given that income tax brackets double for couples in all marginal tax rates (except the highest subclass at 37%). For example, the 32% marginal subclass begins at $182,100 for single filers while starting at $364,200 for couples filing jointly. This marriage “benefit” is often most helpful for couples with a large income disparity between spouses.
This recently played out for a same-sex couple of ours trying to understand the tax benefits versus financing of tying the knot. The lion’s share of household income was made by one partner at $425,000, where the other partner earned $80,000. We found that filing jointly as a married couple would save them over $40,000 in Federal taxes annually versus filing separately as single filers. Armed with this information, the couple said “I do” and saved thousands on taxes.
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2. Social Security Benefits
Social Security offers zaftig goody opportunities for couples that single peers aren’t worldly-wise to leverage. For example, if one spouse’s estimates are increasingly than twice as upper as the other’s, it might make sense for both to sooner collect on the same spouse’s earnings record.
In that situation, the spouse with lower benefits can requirement first based on their own earnings record then wield for spousal benefits later when the higher benefits spouse starts to collect.
The longer the higher goody spouse waits to start collecting, the higher benefits will be for both spouses. Delaying the higher earning spouse’s benefits could moreover sooner increase the other spouse’s survivors benefits.
3. Reduced Insurance Costs
Whether happily riding solo or married, it’s a good idea to shop virtually for auto, homeowners, and similar insurance policies without you tie the knot. Married couples typically qualify for lower premiums than if they were to wield individually as single policyholders. According to Bankrate, the national yearly stereotype car insurance forfeit is $2,014 for one driver; the stereotype forfeit of car insurance for a married couple’s policy is $1,898 for one vehicle. That’s scrutinizingly 6% savings for married couples, which can add up significantly over time. This may not unchangingly be the case, though (more on that in the Cons section below).
4. Wangle to Workplace Benefits
If your spouse has wangle to unrepealable benefits that you don’t have through your employer, you may be worldly-wise to take wholesomeness of them for yourself. If you’re out of the workforce altogether, your spouse could be your ticket to qualifying for key insurance coverages. Depending on the employer benefits of the company, it could be substantially less expensive to elect family coverage on your spouse’s employer health plan than if you shopped for your own coverage in the healthcare mart marketplace.
Besides taking wholesomeness of workplace benefits, you may moreover be worldly-wise to find military benefits and perks from other organizations your spouse belongs to.
5. Individual Retirement Account Contributions
Married couples have spare opportunities to save for retirement not misogynist to unmarried couples. Individual retirement finance (IRAs) can provide tax benefits for those who contribute, but you must meet unrepealable income requirements to be worldly-wise to contribute to a Roth IRA.
While there’s no income limit for Traditional IRAs, you can’t deduct contributions if your income is too high. Married couples goody over non-married peers when one spouse has little to no income while the other technically benefits from a higher limit than what they would have if single. What’s more, a spousal IRA lets a working spouse contribute to an IRA on behalf of their non-working spouse who earns little to no income.
In 2023, this ways a working spouse could make a $6,500 contribution for themselves plus a $6,500 contribution to a spousal IRA. For couples 50 and older, an spare catch-up contribution of $1,000 can be made. Compound this maneuver over two decades of saving and the married couple could find themselves with a much larger retirement skillet versus their friends who elected to remain unmarried.
Five Financial Cons of Marriage
1. Higher Taxes
But wait, didn’t we say marriage could save on your taxes? The wordplay is, it depends. Filing jointly could potentially launch you into a higher tax subclass and forfeit you money. Plus, not all deductions are doubled when filing jointly versus single. It’s important to understand this numbering is on a case-by-case basis. Thankfully, you have professionals willing to swoop into this equation for you. Talk with a tax counselor or financial planner to help you crunch the numbers.
2. Higher Student Loan Payments
If you or your partner are saddled with student loan debt, filing jointly could raise your student loan payments. On an income-based student loan repayment plan, your lender could use the other spouse’s higher income to justify raising your monthly payment. The only way lenders can get this information is by looking at a joint tax return, so you might want to consider filing separately or moving to a stock-still payment plan until your student loans are paid off.
3. Higher Wheels Insurance Premiums
If you live together, most insurers indulge you to add a significant other to your car insurance policy, such as a boyfriend, girlfriend, fiancé, or domestic partner. Wheels insurance companies seem that married people who share a home moreover share cars. Therefore, they might automatically add your partner as an approved, covered suburbanite on your vehicle. If you and your partner have similar driving records, your insurance provider won’t see subtracting them as higher risk. If your partner has a worse driving record than you, stuff married could raise your premiums.
With most insurers, unmarried couples can share a joint car insurance policy or add each other as listed drivers on separate policies, so trammels with your insurer to see if shared or separate coverage is weightier for you.
4. Negative Credit Impacts
Your spouse’s credit could negatively impact your loan terms. When you wield for joint loans as a married couple (mortgages, wheels loans, etc.), lenders will squint at the “lower middle” of your credit scores. For example, if your credit scores from the three credit bureaus are 730, 705, and 693 and your spouse’s are 598, 584, and 572, lenders will use 584. As a result, your partner’s imperfect credit could lead to less well-flavored loan terms (e.g. 9% versus 5%).
5. Divorce Statistics
According to the American Psychological Association, approximately 40% to 50% of first marriages end in divorce. The divorce rate for second marriages is plane higher, with approximately 60% to 67% of second marriages ending in divorce. To protect yourself versus these divorce odds and their consequential financial ramifications, consider learning well-nigh a prenuptial try-on and if one is right for you.
Weighing Your “I Do” or “I Don’t” Options
It’s never too early to start a conversation well-nigh money with your partner. Without all, money is the number one thing couples disagree about, but that doesn’t have to be you.
Schedule a 15-minute conversation with an Abacus financial counselor who can help you understand how getting married can impact your wallet – for better, for worse, for richer, for poorer. (But hopefully not poorer!)
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